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As DNC Chair Wendy Wasserman Schulz can readily attest following her surprise resignation at the conclusion of this week's Democratic National Convention, the tide of cyber warfare intrusions is reaching ever higher now. In fact, it threatens to undermine the integrity of the U.S. Presidential election as indications of Russian activity have become clear, thanks to author Thomas Rid (Who tweets @RidT).

With the lack of a global convention for cyber warfare, it can be expected that intrusions may only escalate further unless collective limits are formally agreed upon. Former National Security Council cyber security advisor Richard Clarke proposes an international treaty to designate certain infrastructure and entities off-limits to cyber assaults, as well as require signatory countries to pass laws that enforce treaty provisions and give the United Nations Security Council authority to impose sanctions on violator nations as it did when Iran was found to be in violation of the International Atomic Energy Agency safeguards regarding nuclear proliferation. If countries and other actors are not kept from pushing forward the frontier of intrusion, cyber warfare will know no bounds. If a U.S. Presidential election is fair game, one can only imagine what will follow.   

Cybersecurity Area Is Now A Staple, But In Need of Consolidation

While these latest developments grab headlines, they only serve to underscore investor interest in cybersecurity which should now be considered as a staple among IT spending categories, not just "nice to have", but "need to have" in order to operate securely in today's environment. It is estimated corporate spending on cybersecurity products and services will expand at 10% annually rising to $170bn in 2020 from 2015's $106bn.

With this level of expected growth, cybersecurity has been the object of investor attention for some time. Based on CB Insights data, there were 332 venture deals totaling $3.8bn in 2015, but with investor concerns the area has become overpopulated there has been a shift to sector consolidation with 133 cybersecurity M&A transactions in 2015 (vs. 105 in 2014), a trend that has continued into 2016 with Symantec (SYMC) paying $4.65bn to acquire Blue Coat Systems in June 2016.

As cybersecurity is a highly fragmented industry with an overabundance of companies making niche products, look for the consolidation trend to accelerate as the need for scale to match rising threat profiles is underscored by recent developments. Nevertheless, within cybersecurity there are investment areas for investor to focus on such as: 1) the need to secure the Internet of Things (IoT), 2) efforts to secure and protect cloud computing platforms such as Amazon.com Inc.'s (AMZN) Web Services (AWS), 3) shifting cyberdefense efforts over to a proactive defense posture through the use of threat intelligence, automated behavioral analysis and remediation to limit intrusion efforts, 4) securing mobile computing platforms which have become increasingly the preferred means of internet access, and 5) increasing efforts to ensure privacy of sensitive individual and enterprise information. 

Please find disclosures below. 

Disclosure - Ownership:

Personal: PYPL

Family: AAPL, INTC, MSFT, PAY

Firm: AAPL, INTC, MSFT

About the author:

David Garrity is Principal of GVA Research, a New York-based consulting firm. He has more than 25 years of experience in the financial services industry. He has served in many senior roles including CFO and Board Director for both publicly-held and private companies, and has extensive experience in several disciplines including advisory, operating and research. David is a thought leader in technology sector developments and their application to the broadening of the financial sector, as well as in the areas of banking and finance, capital markets, and technology innovation. He is a sought-after advisor for technology companies and consults with The World Bank Group on financial inclusion and mobile technology, as well as the development of technology strategy for health initiatives in southern Africa. His paper on mobile money and disaster relief is published in "Technologies for Development: What is Essential?" (Springer Verlag, June 2015).